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Johannesburg – The rand tracked a resurgent euro in
midday trade on Monday following the news of a European Union emergency package for
Greece, and plans to prevent the debt crisis from spreading to member
countries.
The local currency has regained as much as 40c against the dollar from its worst levels on Friday.
At 11:34 the rand was bid at R7.4406 to the dollar from R7.5850 at its previous close. It was bid at R9.7324 to the euro from its previous close of R9.7275 and was at R11.1612 against the sterling from R11.3200.
The euro was bid at $1.3059 from $1.2989 previously.
A local trader said: "The rand's strength is on the back of a euro rally following news of a support package for Greece. We should find support at R7.42 against the dollar, with the range larger than it has been, amid market volatility."
Meanwhile, Dow Jones Newswires reports that the three-part international effort to stave off a debt crisis in the eurozone sent the euro sharply higher on Monday.
The pound was also finding support, not only from the general improvement in global sentiment but from signs that the Conservatives and Liberal Democrats are edging closer to a coalition deal that could see David Cameron as prime minister before the end of the day.
The unexpectedly large size of the European Union emergency package and the joint efforts with the European Central Bank and the International Monetary Fund helped to lift hopes that immediate threats to the single currency have been removed.
While the EU and the IMF have pledged to provide as much as €750bn in funds if needed, the ECB has agreed to start buying government bonds in an effective extension of quantitative easing. The US Federal reserve has also agreed to reopen its dollar swap arrangement with other central banks to ensure the liquidity doesn't dry up.
The immediate euphoria has not only pushed the euro back over $1.30 but it has helped stock markets around the globe stage a recovery too.
Nevertheless, commentators warn that the package doesn't remove all the risks associated with the euro.
'Get out of jail free card'
The chances of a Greek default remain high given the difficulties the Greek authorities face in imposing austerity measures agreed as part of its bail out.
Thus, the risk to the banking community remain high, as does the risk of contagion as Spain and Portugal also struggle to adopt fiscal discipline.
There is also some concern that the package not only compromises the ECB's policy charter to pursue price stability but undermines the terms of the Maastricht Treaty by providing what Mitul Kotecha, head of global foreign exchange strategy at Credit Agricole, described as a "get out of jail free card" for European governments who haven't stuck to their fiscal targets.
Currency strategists at BNP Paribas said that currency reserve managers, who have already been shying away from the euro, are only likely to avoid the currency even more now.
For the time being, however, euro momentum to the upside could remain strong, helped by the unwinding of the large number of short speculative position in the currency that was built over the last few weeks.
Data last Friday from the Chicago Mercantile Exchange showed that these rose to a new record high of 113 00 contracts in the week to last Tuesday.
After last Thursday's general election in the UK, the pound remained very much in limbo as the country's three major political parties failed to command a working majority in the House of Commons.
This has forced the Conservatives, the party with the most seats, to seek a partnership with the Liberal Democrats. Negotiations on deficit reduction policies as well as electoral reform have taken place right through the weekend with some reports suggesting that a final deal could be reached later.
If so, this should bring the resignation of Labour Prime Minister Gordon Brown and invitation from the Queen to Cameron to form a government later on Monday.
By 09:20, the euro had pushed up to $1.3045 from $1.2732 late on Friday in New York, according to EBS.
The single currency was also up at ¥121.75 from ¥116.71.
The dollar slipped to CHF1.0952 from CHF1.1092 but rose to ¥93.36 from ¥91.70 as general market sentiment encouraged a shift in riskier assets.
The pound rallied up to $1.4983 from $1.4800.
- I-Net Bridge
The local currency has regained as much as 40c against the dollar from its worst levels on Friday.
At 11:34 the rand was bid at R7.4406 to the dollar from R7.5850 at its previous close. It was bid at R9.7324 to the euro from its previous close of R9.7275 and was at R11.1612 against the sterling from R11.3200.
The euro was bid at $1.3059 from $1.2989 previously.
A local trader said: "The rand's strength is on the back of a euro rally following news of a support package for Greece. We should find support at R7.42 against the dollar, with the range larger than it has been, amid market volatility."
Meanwhile, Dow Jones Newswires reports that the three-part international effort to stave off a debt crisis in the eurozone sent the euro sharply higher on Monday.
The pound was also finding support, not only from the general improvement in global sentiment but from signs that the Conservatives and Liberal Democrats are edging closer to a coalition deal that could see David Cameron as prime minister before the end of the day.
The unexpectedly large size of the European Union emergency package and the joint efforts with the European Central Bank and the International Monetary Fund helped to lift hopes that immediate threats to the single currency have been removed.
While the EU and the IMF have pledged to provide as much as €750bn in funds if needed, the ECB has agreed to start buying government bonds in an effective extension of quantitative easing. The US Federal reserve has also agreed to reopen its dollar swap arrangement with other central banks to ensure the liquidity doesn't dry up.
The immediate euphoria has not only pushed the euro back over $1.30 but it has helped stock markets around the globe stage a recovery too.
Nevertheless, commentators warn that the package doesn't remove all the risks associated with the euro.
'Get out of jail free card'
The chances of a Greek default remain high given the difficulties the Greek authorities face in imposing austerity measures agreed as part of its bail out.
Thus, the risk to the banking community remain high, as does the risk of contagion as Spain and Portugal also struggle to adopt fiscal discipline.
There is also some concern that the package not only compromises the ECB's policy charter to pursue price stability but undermines the terms of the Maastricht Treaty by providing what Mitul Kotecha, head of global foreign exchange strategy at Credit Agricole, described as a "get out of jail free card" for European governments who haven't stuck to their fiscal targets.
Currency strategists at BNP Paribas said that currency reserve managers, who have already been shying away from the euro, are only likely to avoid the currency even more now.
For the time being, however, euro momentum to the upside could remain strong, helped by the unwinding of the large number of short speculative position in the currency that was built over the last few weeks.
Data last Friday from the Chicago Mercantile Exchange showed that these rose to a new record high of 113 00 contracts in the week to last Tuesday.
After last Thursday's general election in the UK, the pound remained very much in limbo as the country's three major political parties failed to command a working majority in the House of Commons.
This has forced the Conservatives, the party with the most seats, to seek a partnership with the Liberal Democrats. Negotiations on deficit reduction policies as well as electoral reform have taken place right through the weekend with some reports suggesting that a final deal could be reached later.
If so, this should bring the resignation of Labour Prime Minister Gordon Brown and invitation from the Queen to Cameron to form a government later on Monday.
By 09:20, the euro had pushed up to $1.3045 from $1.2732 late on Friday in New York, according to EBS.
The single currency was also up at ¥121.75 from ¥116.71.
The dollar slipped to CHF1.0952 from CHF1.1092 but rose to ¥93.36 from ¥91.70 as general market sentiment encouraged a shift in riskier assets.
The pound rallied up to $1.4983 from $1.4800.
- I-Net Bridge
